Definition
Price gouging is the act in which a pharmacist raises the prices of pharmaceutical products to a level that is higher than the normal price and is considered exploitative, possibly to an unethical degree (Burnham 2017). Usually, this event occurs after a demand or supply shock in the pharmaceutical market. Typical examples include price surges for basic goods after hurricanes or other natural calamities. Pharmaceutical price gouging affects patients by exploiting them and sometimes makes medicines difficult to afford.
A government should always make sure that it comes up with measures to regulate these prices to a reasonable level according to their quality. In a broader usage, price gouging can denote prices generated by practices inconsistent with a competitive free market or the extraction of excessive profits. Price gouging should be discouraged by all appropriate measures by the mandated bodies to ensure that companies or pharmacies do not take advantage of consumers by raising prices. Pharmaceutical price gouging may occur when a provider of medical and other health services sharply raises the prices charged in anticipation of or during a public emergency, or when it abandons or dishonors contracts in order to take advantage of an increase in costs related to such a crisis. A typical instance is a retailer that increases the price of existing stocks of medicine and health services when a hurricane is looming. In the United States, providers may have to show that a price increase largely reflects increased costs, such as running an emergency generator or providing hazard pay for workers, while California has imposed limits on certain price increases during emergencies. These increases are mostly hidden from average consumers because many of the drugs involved are medications that hospitals give to inpatients, for instance, the heart medicines Nitropress and Isuprel (Anderson et al. 2016).
In the pharmaceutical field, there is limited competition. It, therefore, means that there is not enough competition for many drugs to hold down prices. However, some older generic drugs were not profitable because they were priced too low, and thus drug makers ceased to make them. If there is only one company making a particular drug, then the price is expected to rise. Besides, some drugs rarely attract numerous manufacturers, allowing the sole maker to have a de facto monopoly. In the last decade, there has been a short supply of some generic drugs. Some of the problems involved include manufacturing deficiencies and material shortages that may involve poorly maintained factories. Notably, some drug makers usually buy rights to old drugs, thus causing increases in drug prices (Conti and Rosenthal, 2016). Besides, pills may have the wrong active ingredient or be accompanied by other serious problems. Barriers to resolving this issue may include drug-spending patterns, biologics, as well as the old-drug market.
Solution
My suggestion for fighting price gouging in pharmaceutical markets is that companies seeking to exploit the pharmaceutical business solely to maximize profit without regard to patient needs should be constrained by the very market-correcting forces of supply and demand that they have attempted to circumvent.
Another suggestion may be to improve competition in the industry to restore a more equitable supply-and-demand balance. If there is no competition among domestic manufacturers of a specific drug, there may be an abundance of the drug in the international marketplace. Therefore, the government should open the U.S. drug market to generics that have not been reviewed by the Food and Drug Administration but have been approved in developed countries with high-quality standards, including Australia, Canada, and Western European countries. Drug approval standards in such countries are robust, and, in fact, four out of every five active pharmaceutical ingredients in drugs used in the United States are manufactured overseas (Greene and Padula, 2017).
In most markets, forces such as competition and regulation help keep expenses down, while the market for medications in our country is different. Instead of thinking of drug companies as free-enterprise participants, we ought to think carefully about the protections government grants through patents, market exclusivity, and restrictions on reselling drugs. Increasing drug prices across the industry force insurance companies’ costs to rise, too, despite their best efforts to negotiate better deals. Meanwhile, Medicare, which should have vast bargaining power, has historically faced restrictions on direct negotiation with manufacturers.
Deregulating the enormous bureaucracy that restricts new drugs from coming to market is another suggestion I bring forward for curbing price gouging. It would be advisable for companies that produce medicines to ensure that they set purchase prices that are in line with production costs. Burdensome bureaucratic processes have increased costs and made price setting higher than it would be under simpler procedures that set prices without exploiting patients.
The legislature should step up and decisively pass bills authorizing state attorneys general to act against price gouging in the health sector. Such laws would allow an attorney general to pursue detailed information from a manufacturer when price increases seem to be unjustified by the cost of manufacturing or dispensing the drug. That reflects several cases in recent years in which producers acquired the rights to produce and distribute drugs that were no longer under patent protection but had a dominant market share and then sharply increased the price merely because they could (Siwek, 2017, p. 56).
The Senate introduced a bill early last year aimed at fair prices for prescription drugs. The bill, referred to as the Improving Access to Prescription Drugs Act, calls for Medicare to negotiate drug prices. It emphasizes that there is a need to monitor price gouging by manufacturers (Houston, Beall, and Attaran, 2016). The Senate, together with Medicare, should provide regulatory and scientific clarity with respect to complex generic drugs. Besides helping curb gouging, these drug products provide therapies that are important to patients. There is a need to have efficient pathways for the approval of drug products.
Facilitating generic drugs coming to market is one of the most effective forms of price competition for prescription drugs and will help curb price gouging. According to FDA analysis, the first generic entrant reduces prices only marginally, while additional manufacturers can create greater competition. Manufacturers of generic drugs will often reduce medicine prices in the market. The introduction of these drugs is likely to play a vital role in ensuring that other manufacturers in the market do not gouge prices. Over the past decade, development costs for generics increased fivefold while time to market climbed from sixteen months to forty-two months, according to Gottlieb, a former FDA commissioner. Accordingly, I suggest that introducing generic drugs into the market can play a significant role in price regulation.
Lastly, in my view, it is very important that the government make sure that it regulates the market prices of pharmaceutical products where appropriate.
Reference
Burnham, T., Huang, S. and Lo, A.W., 2017. Pricing for Survival in the Biopharma Industry: A Case Study of Acthar Gel and Questcor Pharmaceuticals.
Conti, R.M. and Rosenthal, M.B., 2016. Pharmaceutical policy reform—balancing affordability with incentives for innovation. New England Journal of Medicine, 374(8), pp. 703-706.
Greene, J.A., Anderson, G. and Sharfstein, J.M., 2016. Role of the FDA in affordability of off-patent pharmaceuticals. Jama, 315(5), pp. 461-462.
Greene, J.A. and Padula, W.V., 2017. Targeting Unconscionable Prescription-Drug Prices—Maryland’s Anti–Price-Gouging Law. New England Journal of Medicine, 377(2), pp. 101-103.
Houston, A.R., Beall, R.F. and Attaran, A., 2016. Upstream solutions for price-gouging on critical generic medicines. Journal of Pharmaceutical Policy and Practice, 9(1), p. 15.
Kantarjian, H., Rajkumar, S.V., Baker, L.H., Abkowitz, J.L., Adamson, J.W., Advani, R.H., Allison, J., Antman, K.H., Bast, R.C. and Bennett, J.M., 2015, August. In support of a patient-driven initiative and petition to lower the high price of cancer drugs. In Mayo Clinic Proceedings (Vol. 90, No. 8, pp. 996-1000). Elsevier.
Siwek, J., 2017. Drug Price Gouging: When Will It End?. American Family Physician, 96(1), pp. 20-20.
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